Oil Prices
The week started with oil jumping more that $2 a barrel to a new high of $143.67 only to fall back later in the day. Tensions over Iran’s nuclear program and a falling dollar appeared most responsible for the jump. Tuesday brought a new IEA report acknowledging that permanently high prices will cut demand but also raising concerns about long-term supply shortages.
Wednesday’s stocks report showed an unexpected drop of 2 million barrels in US crude inventories as gasoline and distillate inventories increased. After the report, prices rose by nearly $3 to a new high of $143.91 and closed at $143.74. Early Thursday morning prices rose to nearly $146 a barrel on expectations that the European Central Bank was about to increase interest rates (further driving down the dollar).
Heating oil futures gained 13 cents to $4.07 a gallon and gasoline gained 4 cents to close at $3.55 a gallon. The average US retail price for gasoline reached $4.09 last Friday after a one-week respite.
The World Petroleum Congress
As nearly every major figure in the oil world has been attending the Congress in Madrid this week, there has been a steady stream of stories emanating from reporters buttonholing CEOs and Oil Ministers on the sidelines. Among the more interesting was an assertion from the Saudi Oil Minister that Aramco could now pump 11 million b/d on a sustainable basis and a statement from a senior Brazilian official that Petrobras would not be able to make a reasonable estimate of the size of the new offshore discoveries until 2009.
Iranian Nuclear Enrichment
In the wake of reports that the Israelis rehearsed for a strike against Iranian nuclear facilities, the war of words over Tehran’s enrichment program escalated this week. Seymour Hersh reported that the US has launched a $400 million covert operation to destabilize Tehran using special forces and Iranian dissidents. Washington, of course, emphatically denied the report.
The Iranians reacted with threats to stop oil shipments through the Straits of Hormuz in the event of an attack and announced they were digging graves for the 320,000 American troops they planned to kill in the war. A US Admiral called a press conference to assert that the US will never allow Tehran to close the Straits.
With Moscow chiming in to say that a military attack on Tehran would be catastrophic, the oil markets remain concerned that the situation could deteriorate.
